European, U.K. banks cut key rates

Added boost for global economy

FRANKFURT, Germany — European Central Bank cut its main interest rate by half a percentage point Thursday, making its fourth rate cut this year amid mounting signs of a deepening economic slowdown.

The move lowered the ECB's main refinancing rate to 3.25 percent, its lowest level since February 2000. The ECB has cut rates by 1.5 percent this year.

The bank had maintained a cautious approach since making a half-point cut Sept. 17 in coordination with the U.S. Federal Reserve, despite calls to cut rates more quickly from some European government officials worried about slowing growth.

The ECB's caution has contrasted with the approach of the Fed, which has cut rates by 4.5 percentage points this year. The Fed's half-point reduction Tuesday was its 10th cut of the year and lowered its federal funds rate to a 40-year low of 2 percent.

"Obviously, they have totally changed their mind and no longer think that we have to be so cautious," said Michael Schubert, senior economist at Commerzbank in Frankfurt. But he said the cut may have come "a little bit late to calm down sentiment. It could create an environment where people think that even the ECB is panicked now."

Calling the decision "an easy one," ECB President Wim Duisenberg said he hoped the cut would restore economic confidence. He conceded that "confidence has been harder hit than we thought a few weeks ago" and that uncertainty in the wake of the Sept. 11 terrorist attacks will probably delay investment decisions.

Calls from European politicians and economists for another rate cut had grown steadily in recent weeks as evidence of an economic slowdown increased.

The latest bad news came on Thursday when it was reported that German industrial production fell 2 percent in September from August. On Wednesday, the International Monetary Fund again lowered its growth forecast for Europe's largest economy.

But sources said the cuts from the Fed and Bank of England, which earlier Thursday also lowered its key lending rate by half a percentage point, had more influence on the ECB than the clamoring of politicians.

Economists also said the ECB risked undermining the euro if it didn't cut rates. The common currency has failed to sustain a rally against the dollar, a sign investors are wary of growth prospects in the euro zone. The euro rallied briefly Thursday but finished the day trading at 89.25 cents to the dollar, off from 89.65 Wednesday.